CMM Infraprojects Ltd Management Discussions

The Indian economy was affected by the second wave of the pandemic that affected economic growth towards the fag end of the previous financial year and across the first quarter of the financial year under review. The result is that after a growth of 1.6% in the last quarter of FY 2020-21, the Indian economy grew 20.1% in the first quarter of FY 2021-22 due to the relatively small economic base during the corresponding period of the previous year.

Indias monsoon was abundant in FY 2020-21 as the country received 99.32% of a normal monsoon, lower than in the previous year. The estimated production of rice and pulses recorded volumes of 127.93 Million Tons and 26.96 Million Tons respectively. The total oilseeds production of the country recorded a volume of 371.47 Million Tons. Moreover, based on the spatial and temporal distribution of the 2021 monsoon rainfall, the agricultural gross value added (GVA) growth in FY 2021-22 is anticipated to be 3-3.5%. The countrys manufacturing sector grew an estimated 12.5%, the agriculture sector 3.9%, mining and quarrying by 14.3%, construction by 10.7% and electricity, gas and water supply by 8.5% in FY 2021-22.

Indian economic reforms and Union Budget 2022- 23 provisions

The Union Budget FY 2022-23 seeks to lay the foundation of the Indian economy over the Amrit Kaal period of the next 25 years leading to 100 years of independence in 2047. The government is emphasizing the role of PM Gati Shakti, Inclusive Development, Productivity Enhancement & Investment, Sunrise Opportunities, Energy Transition and Climate Action, as well as Financing of Investments.

The capital expenditure target of the Indian government expanded by 35.4% from Rs. 5.54 Lakh Crore to Rs. 7.50 Lakh Crore. The effective capital expenditure for FY 2022-23 is seen at Rs. 10.7 Lakh Crore. An outlay of Rs. 5.25 Lakh Crore was made to the Ministry of Defence, which is 13.31% of the total budget outlay. A boost was provided to Indias electric vehicle policy Scheme for Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicle in India. An announcement of nearly Rs. 20,000 Crore was made for the PM Gati Shakti National Master Plan to catalyse the infrastructure sector. An expansion of 25,000 Km was initiated for FY 2022-23 for the national highways network. To boost the agricultural sector, an allocation of Rs. 237 Lakh Crore was made towards the procurement of wheat and paddy under MSP operations. An outlay of Rs. 1.97 Lakh Crore was announced for the Production Linked Incentive (PLI) schemes across 13 sectors.

Construction Industry

The Indian construction industry is the engine of the Indian economy. The Indian construction sector is responsible for propelling the countrys overall development as good infrastructure is the basis for all other projects, and it enjoys prime attention from the government. A huge employment opportunity exists for Indias youth in construction, operation and maintenance of infrastructure. As a result, the National Skill Development Agency is also maintaining its thrust on infrastructure-focused skill development opportunities.

Outlook

Indian Infrastructure Industry

For a developing economy like India, with a high aspirational population, infrastructure creation is the critical need of the hour. It is the broad foundation of the economy, which support all other sectors. The infrastructure sector, as a whole, spans a wide range of sub-groups such as power, roads, ports, railways, airports, telecommunication, and so on. In spite of challenges posed by the pandemic since 2020, India continues to rank among the fastest growing economies of the world, with a vision to accomplish the US$ 5 trillion mark in the foreseeable future.

The key driver for the Indian economy is infrastructure sector. The India government increased the National Infrastructure Pipeline (NIP) to 7,400 projects in FY 2020-21, even as ~217 projects worth H 1.10 Lakh Crore (USD 15.09 billion) were completed in FY 2019-20. The government had invested USD 1.4 trillion in infrastructure development through the National Infrastructure Pipeline as of July, 2021. Sectors such as roads, urban development, railways and energy approximated ~71% of the projected infrastructure investments. In FY 2020-21, India attracted USD 81.72 billion through infrastructure sector

Roads: India possesses the second largest road network in the world spanning 6.4 Million Km, covering over 90% of passenger traffic and 64.5% of freight traffic. For the past few years, road transportation connectivity has improved. Despite the pandemic restrictions, India constructed 13,298 Km of highways in FY 2020-21; highway construction between 2016 to 2021 reported a CAGR of 21.44%.

The Government of India had launched major initiatives to upgrade and strengthen National Highways through various phases of the National Highways Development Project ("NHDP"). It is taking the initiative forward through the umbrella programme of Bharatmala Pariyojna, Phase-I and other schemes and projects.

The Bharatmala Pariyojana envisages 60% projects under the Hybrid Annuity Mode ("HAM"), 10% projects on BOT ("Toll") Mode and 30% projects on the Engineering, Procurement and Construction ("EPC") mode. A total of 604 of road projects with an aggregate length of 20,965 km have been approved and awarded under the Bharatmala Pariyojana (including 131 of residual NHDP works of aggregate length of 5,529 kms) with a cumulative capital cost of 6,41,713 Crores. Of the total approved 604 projects, 389 of projects, covering an aggregate length of 11,710 kms have been approved on the EPC mode, 209 projects covering an aggregate length of 8,781 kms on HAM mode and 6 projects covering an aggregate length of 473 kms on BOT (Toll) mode.

GatiShakti Master Plan

The PM Gati Shakti National Master Plan was launched to break departmental silos and brought 16 Ministries including Railways and Roadways together for integrated planning and coordinated implementation of infrastructure connectivity projects. The plan is expected to incorporate the infrastructure schemes of various Ministries and State Governments like Bharatmala, Sagarmala, inland waterways, dry/land ports, UDAN etc. Economic Zones like textile clusters, pharmaceutical clusters, defence corridors, electronic parks, industrial corridors, fishing clusters, agri zones to improve connectivity and make Indian businesses more competitive.

Railways: The Indian Railways network is one of the largest railway systems in the world.

The route length of Indian railways is 67,956 Km. In spite of the pandemic, Indian Railways commissioned 1,793 Km length of new lines, gauge conversion and doubling. Railway

Company Overview

During the year under review Company has made a turnover of Rs. 56,94,96,000/- and a profit after tax of Rs. 51,44,000/-.

The Cash Flow summary for the financial year 2021-22 under indirect cash flow method is as follows:

Opportunities,

The Indian government made an announcement on larger outlays for infrastructure development. For FY 2022-23, the government announced Rs. 1.3 Lakh Crore for the Indian Railways to improve infrastructure

Risk Management

Construction industry is highly risk prone, with complex and dynamic project environments creating an atmosphere of high uncertainty and risk. The industry is vulnerable to various technical, socio-political and business risks- errors caused on account of adoption of improper methodology of construction, carrying out improper market survey, improper data input, extraordinary hike in the cost of construction materials, fluctuation in the exchange rates involving transactions in foreign currency, improper assessment of the locational hazards and assessment of taxes/duties in the operation of the contract are being independently assessed/analyzed by various Cells - like tendering, operations, procurement, finance, banking, HR and IT Cells and mitigation procedures/ plans are being formulated and monitored to reduce, if not totally eliminate, the risks associated with the above.

The Companys ability to foresee and manage business risks is crucial in achieving favourable results. While management is positive about the Companys long term outlook, we are subject to few risks and uncertainties as given below:

Finance Risk: Unable to meet funding requirements for the project may lead to delays in project execution. The inability to negotiate interest rates in favour of the company may increase finance costs and lower profitability. To meet its working capital requirements and to fund its debt, the company constantly monitors its cash flow.

Market price fluctuation: The performance of your company may be affected by the sales at a price which are driven by prevailing market conditions, the nature and location of the projects.

Quality Risk: Inability to maintain the quality of products and failure to adhere to recommended quality standards might adversely impact the Companys reputation as well as its financial position.

Raw material price risk: The primary construction materials like steel, cement and etc are subject to price volatility due to general economic conditions, competition, production levels, transportation costs and domestic and import duties and any adverse impact of rise in input cost will have impact on the profitability of the Company.

Technology risk: With the advancement of technology there is a growing need to improve operational efficiency and ensure better customer satisfaction through advanced systems and processes. The Company relies on advanced technology to build high rise towers, which helps to increase its operational efficiency. 3

Human Resources Risk: Inability to complete and deliver projects on time due to lack of skilled labour can result in hefty penalties for the company, leading to a loss of reputation. The inability to retain or acquire competent and experienced employees may also hamper its ability to pursue growth strategies effectively. The Company has a dedicated labour department to look after the deployment and allocation of human resources within the organization and the project sites.